Is the language we use in crowdfunding a problem?

The more we use old world capital market terminology the more we undersell, betray and erode crowdfunding and the more we mis set the expectations of new entrants.

When I hear about things like Lending Club working with Goldman Sachs to “Securitise” $150m worth of loans I begin to worry. When I hear of more and more institutional money flowing onto crowdfunding platforms I worry. When I see old world capital participants cynically creating “crowdfunding” platforms which are not crowdfunding at all I worry.

But in many ways I worry more when we casually and thoughtlessly fall into the use of old world capital terminology speaking of “investors”, “dragons” “yield”, “ROI” “exits” “valuations” “multiples” and all the rest to describe crowdfunding activity and participants.

And here is why.

Crowdfunding is different. Or at least it was. Crowdfunding was not just an extension of the existing capital markets and it was not invented to meet a gap in the existing market at a period of capital constraint post the 2007 crash. Crowdfunding, by virtue of its philosophical and practical traditions, emerged as a new and different model. A different model with new motivations and new participants, and new terms of engagement. Sure it provides money but it provides better money, money with more benefits, genius money as we choose to call it. It is genius because it comes under different terms and different expectations. The relationship and the contract is a different one. And on top of that it brings piles and piles of additional value. So crowdfunding has no need to look, describe itself or behave like old world capital. The more that it does the more it loses its soul and that is worse for all participants.

The language and preoccupations of old world capital have no place in crowdfunding.

To introduce them simply misleads the backers and supporters and mis sets their expectations and what to expect and why to engage and its storing up problems for the future. But perhaps more importantly by changing the nature of that relationship between backers and who they back, those getting the support are increasingly cheated out of all the benefits of having these different backers support them. They end up not getting the genius money just dumb old old world money.

This is one of my biggest bug bears with the FCA. They treat Crowdfunding as nothing other than a traditional “investment” and as such they create a culture, an expectation around the transaction which is inappropriate and, in so doing and as I have argued elsewhere, introduce greater risk to the sector rather than mitigating it. It is probably more “cock up” than conspiracy in the FCA’s case. With their “usual suspects” background they probably don’t know any better, but then again you rather get the impression that they don’t want to learn either.

Many platforms are also complicit in this as well. In part because, in the arms war to grow and secure their position (and often to pay back the old world capital backing them!), they have to conform to the requirements of the regulator and partly because they think this is how to attract in the “investors” and the institutional money they crave.

This will create a problem down the line for platforms as the financial and economic circumstances change and they find themselves competing with other traditional investments in a typical old style marketplace and find they have little to offer to differentiate themselves. So maybe short term gain may lead to long term pain.

But it seems that anything the wretched bankrupt sphere of old world capital touches corrupts – in that King Midas way that ultimately comes unstuck.

I found it fascinating speaking to a multiple successful crowdfunder recently who spoke of how he had experimented with Facebook Ads for a recent campaign and how he was abandoning them. For him straight ads created a different relationship. This was simply retail, ecommerce. The contacts coming through this route were just “purchasers” they were not in the for the journey. It is not for nothing that many platforms reinforce that they are not shops, and by the same token they are not banks or VCs either!

This is not a mere semantics exercise either. It cuts to the heart of what makes crowdfunding so different and so much part of a new crowdeconmy model which offers a new and better vision of how to do things.

So we must not be seduced by the siren calls of those that would simply see crowdfunding as an extension of what has gone before. We must guard against this by our use of language which can be very powerful, and I am as guilty of using loose terminology as anyone else. You, I and others needs to pay attention to this, it should mark us out as the uncorrupted.

So if your lending platform of choice begins to issue press releases about they “securitize” their loan book, or refer to you as an “arm chair dragon” I suggest that it is time to leave and take, or seek, your genius money elsewhere.

2 Comments

I can completely see how advertising could be used effectively to attract cash without corrupting ‘the journey’. It’s simply a matter of how the communications are executed.

Consider this personal example of how I made a recent foray into peer-to-peer lending. I was at a networking event. Somebody I trust was explaining how she had been ‘playing around with Lending Crowd. It sounded like something fun and interesting. And so I joined and have started lending.

That word-of-mouth experience could absolutely be mimicked in advertising without attracting soulless sharks!